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Thursday, February 27, 2014

Uber Kept New Drivers Off The Road To Encourage Surge Pricing And Increase Fares

As reported by The Verge: Andrew Lane is a regular Uber customer with some fond memories of the service. Last year on President's Day he was the lucky rider selected for an "Ubercade" upgrade. "They sent over a free limo with secret service agents and everything. I got my girlfriend and we cruised by her ex-boyfriend's place. It was awesome." "We didn't activate new drivers to make earnings even higher this weekend." But this Valentines day, while traveling through San Diego in an Uber car, Lane heard something that disturbed him. "The driver had a Ford Sync system, and it read his text messages out loud." The message, which came wedged between numerous texts about a promotion for free roses, said, "UberX is very close to SURGE. It's Valentine's Day! People will be out all night and we didn't activate new drivers to make earnings even higher this weekend."

Uber’s surge pricing has been a controversial feature of the company’s business for some time. It uses an algorithm to raise and lower the price based on demand. At extremely busy times, especially holidays, rates can be as many as seven times the normal price. The company's CEO, Travis Kalanick, has been front and center defending this model. "Surge pricing only kicks in in order to maximize the number of trips that happen and therefore reduce the number of people that are stranded," he told Wired in an interview. Kalanick has always maintained that Uber is a neutral party, a technology platform that helps to most efficiently connect drivers and riders. "We are not setting the price. The market is setting the price. We have algorithms to determine what that market is."

"We are not setting the price. The market is setting the price." When Lane heard the Uber text message, he understood it to mean that the company was keeping current drivers off the road, limiting the supply to raise rates. To Lane it seemed Uber was favoring drivers over riders. "It made me angry, you know," says Lane. "Basically they are trying to rig the system to jack up fares on customers like me."A law professor briefed on the text message says it may be suspect, given the company’s public framing of surge pricing. "This certainly sounds deceptive," says Arnold Rosenberg, assistant dean at the California Western School of Law in San Diego. "Something like this violates state laws around unfair business practices as well as Section 5 of the FTC act."Uber says the whole thing is a misunderstanding. Uber confirmed the text message, but says the whole thing is a misunderstanding. The company did not artificially restrict the number of drivers who were able to come on to the system on Valentine's Day — a particularly busy day for Uber rides — says spokesman Andrew Noyes. He explained the text simply noted that Uber did not onboard as many San Diego drivers as they could have that week because in the two weeks prior, a very large number of new drivers were added to the system. Earnings had been low, and the company wanted to reward new drivers with a strong holiday paycheck.

In other words, this wasn't Uber specifically tweaking the number of drivers at a given time to tip things over into a surge. It was a big-picture strategy to make their new drivers happy. Noyes points out that during the week of the 10th, when this trip took place, only 5.6 percent of the trips on the Uber network were affected by surge pricing."That is a slap in the face to customers." Regardless of when and why the additional drivers were withheld, the larger tension still stands: Uber insists that it's a marketplace, a neutral technology platform that works solely to connect drivers and riders with maximal efficiency. But it is also a business, and so may sometimes tilt the scales to keep drivers, its employees and contractors, happy.The company’s explanation didn’t sit well with Lane. "Honestly it feels worse. Uber specifically withheld supply on a busy holiday weekend even while it predicted that doing so would create significantly higher prices," he said. "Best-case scenario it’s fleecing customers to enrich drivers, worst-case scenario it’s fleecing customers to enrich the broker (Uber). That is a slap in the face to customers."

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I have more than 25 years of experience in development, design, and mobile communications products and technology. I also enjoy skiing, hiking, scuba, tennis, reading, traveling, foreign languages, and painting. I'm an active member of the National Ski Patrol (NSP) and volunteer my time at either Loveland Ski resort, or Ski Cooper.